In yet another blow to its reputation,
) has been ordered to pay nearly £19.5 million ($30.5 million) in
fines and compensation by the UK financial regulator, Financial
Services Authority (FSA). The company has been accused of
exposing its customers to undesirable risk while selling a fund
American International Group, Inc.
Of the total amount, approximately £9.5 million ($14.8 million)
is the penalty that UBS has to pay to the FSA for not exercising
proper due diligence when it sold the AIG Enhanced Variable Rate
Fund to about 2,000 high net worth customers during the 2003-2008
period. Though basically a money market fund, it also invested in
asset-backed securities and floating rate notes.
During the financial crisis, the fund's value started diminishing
and many customers withdrew their money. However, the fund was
suspended and investments worth £816 million of about 565
clients' were stuck in the fund. Hence, the company will be
paying roughly £10 million ($15.7 million) as compensation to
Further, the FSA alleged UBS of lacking a proper redress
mechanism in place to deal with customer complaints. The
regulator stated that the company mis-sold the fund to at least
19 clients while nearly 11 customer complaints were not
Nevertheless, as UBS agreed to an early settlement of the FSA's
inquiry, it qualified for 30% discount on the fine. Otherwise,
the FSA would have imposed a £13.5 million penalty on the
In addition to UBS, Coutts - the private banking arm of
The Royal Bank of Scotland Group plc
) - was fined £6.2m in 2011 by the FSA for the same fund.
Moreover, the allegations against Coutts were the same.
UBS has been facing investigations and penalties for its conduct
leading to the financial crisis. In Dec 2012, UBS announced that
it will be paying a penalty of CHF 1.4 billion to the U.S., UK
and Swiss authorities to resolve charges for its involvement in
the manipulation of the London Interbank Offered Rate
Also, in Nov 2012, the company was slapped with a fine of
£29.7 million by the FSA for failing to prevent significant
unauthorized trading that resulted in a substantial loss of about
AMER INTL GRP (AIG): Free Stock Analysis
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UBS AG (UBS): Free Stock Analysis Report
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We believe the resolution of UBS' regulatory probes is
encouraging and this is reflected in the company's Zacks Rank.
Currently, the company retains a Zacks Rank #2 (Buy). Among other
Bank of Montreal
) carries a Zacks Rank #1 (Strong Buy) and is worth